Has Skype Peaked?

The question to me is not whether or not Skype is worth $3 billion – yes, that’s billions with a B – dollars, but rather where they go from here. While some analyses have focused on the revenue generating potential of Skype – or lackthereof – from where I’m sitting, the real value of Skype to potential acquirees may not be what it can produce, but what it can take away from, say, the established landline incumbents. Or, on the other side of that coin, the quasi-telecom status it could immediately grant a non-telecom player with grand ambitions.

The underlying assumptions fueling both the valuation and the assessments of Skype’s potential are, as near as I can determine, a simple reflection of the wild growth and popularity the application has experienced. It’s clearly come a long way from the bleeding edge early adopter days, and the assumption generally seems to be that further growth, while not guaranteed, is at least highly likely. Such is the benefit of achieving critical mass; doubters are more easily cast aside.

But while I wouldn’t put myself in the doubter category just yet, I must admit that I’m growing more skeptical. I’ve heard complaints in the past, of course, about the fact that Skype’s gone the closed route with respect to its transport protocols. But in the absence of a credible alternative, it seemed to be something of a moot point. A little while back, however, I’d heard somebody mention a project called Gizmo, then promptly forgot about it. Reminded of the effort by the excellent Brian Capouch when we spoke last week, I’ve been paying more attention, and keeping a keen eye out for traction. And you know what? I’m seeing faint traces of it, here and there.

For those that are unfamiliar with Gizmo, as I was, it’s more or less a Skype alternative that’s decided to base itself on the open SIP standard rather than go the proprietary protocol route as has Skype. Now from what I’m led to believe, SIP does not enjoy universal popularity amongst the VOIP crowd, but given a choice between that and a proprietary protocol they’ll choose SIP every day of the week and twice on Sunday.

In the absence of credible SIP alternatives, as previously mentioned, this was essentially a non-issue for the runaway train that was/is Skype. The SIP-loving – or at least tolerating – VOIP crowd may have grumbled about it, but there was nothing really credible to offer up as an alternative. Enter Michael Robertson, of MP3.com and Lindows fame, who created SIPphone, which in turn created Gizmo, expressly to compete with Skype. Suddenly Skype has a legitimate competitor (I’d give you a comparison of the two, but Gizmo’s Linux offerings at the moment are Linspire and Debian packages only – c’mon guys, what about the rest of us?); besides, of course, the IM platforms that have studiously been adding voice chat capabilities.

Who cares, you might say? Why should it matter that Skype’s protocol is closed? The sound quality’s great, and it’s always worked for me. Well, maybe you shouldn’t. If you see a future for things like Asterisk, however, I believe that it does matter – it matters a great deal. Because if one believes as I increasingly do that we’re progressing towards a future where voice is just another stream of data, having that data passed around in formats open and agreed upon by many will open doors for you, while proprietary formats will close them. Intrinsically flawed as it might be, email here – not IM – is the system to emulate. The power of standards is demonstrated every time someone on Exchange successfully emails someone on Notes, while the limitations of proprietary approaches are evident whenever an AIM user wants to IM a Yahoo user. Should proprietary voice formats take hold, it could be like the instant messaging world today, where the network predetermines your audience. Would you want a phone that only allowed you to talk to other Verizon customers? I sure wouldn’t.

But it’s not just Asterisk that can leverage open standards, as the recent Google Talk announcement highlights. No, Google Talk doesn’t support Gizmo at the moment, nor does it support Skype. But because Gizmo is SIP based it might – and soon. Technorati’s Niall Kennedy (there’s a good Irish name if ever I’ve seen one 😉 says that such an effort is already underway. There are also those who see Google Talk itself as a competitor to Skype. On that front, however, I tend to side with Steve Gillmor who – in his trademark tones (which as an aside, I quite enjoy) – says:

“They [Google] aren’t even competing against Skype, because the reality of Skype’s ubiquity is an asset of the broader platform, not something to be targetted for extinction.”

While Asterisk proliferates amongst the technical elite – the community that put Linux on the map, Google Talk will be there to open doors to the masses. Whether or not Gizmo can capitalize on the opportunity – potentially at the expense of Skype – remains to be seen; I don’t think that call can be made yet. But just as Google opened doors for itself by relying on the preexisting Jabber protocol, so too can Gizmo steal a march on Skype by going the standards route.

Either way, it’s clear to me that VOIP is coming, in a big way (and, by extension, that traditional telecom as we know it is in trouble). It’s equally clear that Skype’s played a large role in getting us to where we are today, if only by popularizing the concept of VOIP amongst the people with the power to make it a reality. The question in my mind, however, is whether the closed over open stance taken by Skype will cost them a similar or greater role in the future to come.